As pensions burn, officials learn the fiddle

In a striking symbol of how little the Great Recession taught many officials, The U-T San Diego and California Watch reported that San Diego County’s pension fund is sending three board members – including an alternate – to Hawaii for a week to attend an “educational” conference that offers a whopping three days of instruction.

So that officials aren’t overworked on Waikiki Beach learning topics such as “Avoiding a Front Page Scandal at Your Pension Fund,” organizers thoughtfully scheduled most sessions to end by 2:30 p.m., leaving time for golf, surfing and relaxing beside one of five swimming pools.

In a prepared statement, officials said they budgeted for six days in Hawaii, but hoped board members will save money by staying just five. And they said educating administrators “adds value” for retirees.

We suggest online classes, beginning with the utsandiego.com archives, which detail how elected officials statewide increased pensions by 50 percent a decade ago and then reduced contributions to investment funds.

When stock markets crashed, governments were forced to raise contributions suddenly, sending some into bankruptcy.

The disaster has prompted some reforms. The best is San Diego’s Proposition B, which limited all new hires for city jobs (except for police) to 401(k) accounts like most taxpayers, instead of guaranteed pensions. But unions have challenged Prop. B, and won a round recently before a state administrative judge.

Yet the refusal to face reality symbolized by the Hawaii junket goes much deeper.

Elected officials lack the courage to cut public pay in sufficient amounts to prevent massive underfunding. Just as bad, pension officials are betting on incredible investment performance to honor taxpayer promises to retired workers.

Big companies such as Boeing, GM and United Parcel Service recently poured billions into their pension accounts. The reason is familiar to any retiree with a certificate of deposit: Interest rates are at historic lows, so investment income has plummeted. This requires more savings to make up for poor returns.

But governments are not nearly as honest with themselves. CalPERS, the giant state pension system, assumes it will average 7.5 percent a year on its investments, thus reducing required savings. San Diego (which averaged 1.8 percent since 2007) assumes the same 7.5 percent, while San Diego County’s system uses 8 percent.

Warren Buffett, one of history’s best investors, advises pension managers to assume no higher than 6 percent. And Moody’s, the credit ratings firm, is proposing a standard of 5.5 percent for public funds.

Adopting the realistic Moody’s standard would double San Diego’s unfunded pension liability to $4.1 billion, leaving the system only 53.7 percent funded, according to an analysis for the U-T by Ed Ring, research director of the California Public Policy Center. San Diego County’s debt would nearly triple to $6.2 billion, or just 58 percent funded.